MUMBAI, BANGALORE: Tata Consultancy Services (TCS) will pay $30 million (Rs 163 crore) to settle a sevenyear-old case in the US filed by two former employees, making it the largest employee class action suit settlement by any Indian company. Besides TCS, the case — originally filed in 2006 in California by Gopi Vedachalam and Kangana Beri — named Tata International and group holding company Tata Sons as defendants, challenging their practice requiring employees to sign over their tax refund cheques to their employer.

Analysts said the development is a sharp pinprick for India's largest software company, but not something that affects business operations at a company with revenue of over $10 billion in fiscal 2012. Shares of TCS stock touched a new 52-week high at Rs 1,494, gaining 1.56% on the Bombay Stock Exchange on Tuesday.

"TCS believes that it always acted appropriately notwithstanding the allegations in this case. It agreed to settle this matter to eliminate any on-going distraction to its associates and management," the Mumbai-based company, which employs about 2.5 lakh employees, said in a statement.

The lawsuit alleged that TCS has required its non-US-citizen employees to sign power of attorney agreements delegating an outside agency to calculate and submit each employee's tax return to state and federal authorities.

Further, it alleged that the company then required these employees to send the tax refund checks back to Tata. The complainants also contended that TCS did not pay them the salary they were promised before they came to the US.

The Tata Group has not admitted to any wrongdoing and it insisted that none has been found by the court either. According to the lawyers representing the employees, there are 12,800 current and former Tata employees — called class members — who are potential beneficiaries of the settlement. If all the class members claim their share, each of them will get about $1,600 while 30% of the settlement amount will be set aside for paying attorneys' fees and another and another $270,000 for footing litigation expenses.

"We commend Tata for its decision to invest money in its own workers rather than on continued litigation," said Kelly M Dermody, a partner at Lieff, Cabraser, Heimann & Bernstein which represented the employees. Lawyers representing the employees have moved a motion — unopposed by the Tatas — in the US District Court for the Northern District of California seeking approval of the settlement.

"Looking at the incidents in the recent past, any company that operates in US has to keep these risks in sharp focus," Rikesh Parikh, vice-president, markets strategy and equities at Motilal Oswal Securities. He added that as the legal challenge has been a long hounding issue for the company, the settlement of it will represents a short-term positive sentiment for the stock.

Other Indian IT companies have also been at the receiving end of employee litigation in the US, which is the largest market for software services exporters. Over the past couple of years, Infosys, India's second-largest technology outsourcer, has faced a spate of investigations and lawsuits, some of which are still ongoing. These relate to practices for seeking work visas to send engineers on short-term projects to the US. L&T Infotech has also been sued by former employees for unfair dismissal.